In 1924, Murphy bled dogs to make them anemic (work inspired by war injury work), and then fed them various substances to gauge their improvement. He discovered that ingesting large amounts of liver seemed to restore anemia more quickly of all foods. Minot and Whipple then set about to chemically isolate the curative substance. These investigations showed that iron in the liver was responsible for curing anemia from bleeding, but meanwhile liver had been tried on people with pernicious anemia and some effect as seen there, also. The active ingredient in this case, found serendipitously, was not iron, but rather a water-soluble extract containing a new substance. From this extract, chemists were ultimately were able to isolate vitamin B12 from the liver. Even before the vitamin had been completely characterized, the knowledge that raw liver and its extracts treated pernicious anemia (previously a terminal disease) was a major advance in medicine.

Murphy married Pearl Harriett Adams on September 10, 1919. They had a son, William P. Murphy Jr., and a daughter, Priscilla Adams.